Insurance 101: Homeowner’s, Mortgage and Mortgage Life Insurance Explained

Homeowner’s insurance, mortgage insurance and mortgage life insurance all play an important role in homeownership. But they’re also all very different in the benefits they provide. Read on to learn more about these types of insurances and how they help you as a homeowner.

Homeowner’s Insurance

What is homeowner’s insurance? 

Just as car insurance covers damages to your vehicle, homeowner’s insurance covers damages to your home. Also, like car insurance, you can opt to pay insurance premiums monthly or annually, depending on your unique situation (this amounts to approximately $1,200 a year, according to a recent study). 

How does it help? 

Although homeowner’s insurance isn’t mandatory, it is highly recommended as it will cover the costs associated with fires, natural disasters, theft or other forms of damage. However, the coverage you receive depends on the type of policy you choose, including: 

• Comprehensive: Your entire home and its contents
• Basic: Coverage related to specific hazards (such as flood or fire)
• Broad: A blend of comprehensive and basic 
• No Frills: Generally meant to cover what would otherwise be considered uninsurable property

*For more information of different types of coverage, visit the Insurance Bureau of Canada website 

Mortgage Insurance

What is mortgage insurance? 

Unlike homeowner’s insurance, mortgage insurance (sometimes referred to as mortgage default insurance or private insurance) is mandatory for home buyers with a down payment of less than 20%. This is a monthly premium that’s added to your regular mortgage payment and is calculated based on how much you put down (anywhere between 5% and 19%).  

For instance, if you put down the minimum 5% on a $350,000 home over an amortization period of 25 years, you can expect to pay an additional $13,300 in mortgage insurance (this works out to approximately $45.00 per month). 

How does it help? 

Mortgage insurance benefits both the home buyer and the lender. For the lender, this insurance is in place to protect their interests should you default on your loan. As a home buyer, mortgage insurance gives you the opportunity to purchase a home without having to come up with a large down payment. 

*See how much you can expect to pay for mortgage insurance with the help of our handy mortgage calculator

Mortgage Life Insurance 

What is mortgage life insurance? 

Unlike regular life insurance, mortgage life insurance is home-specific, meant to cover the costs associated with your mortgage in the event of a death, illness or job loss. This type of insurance is typically offered at the time of purchase and is paid monthly (costs will vary depending on your unique situation). 

How does it help? 

While it’s not at all pleasant to think about, accidents do happen – yet the mortgage still needs to be paid. Much like regular mortgage insurance (above) this type of insurance is meant to protect both you and the lender from defaulted payments. 

Did you find this blog post helpful? There’s more where that came from! For additional information, advice, tools, tips and tricks, we invite you to visit paranych.com.

Photo credits: freepik.com

Categorised in: Mortgage & Financial

This post was written by Terry Paranych Real Estate Group